Cypress Holdings Co., Ltd.

In addition to competition from family restaurants, fast food chains, and others, competition may intensify due to market shrinkage from Japan's declining population. If competitors deploy greater marketing resources than the Company, this could lead to a decline in the number of customers and sales per store. As countermeasures, the Company is securing favorable procurement terms by maintaining relationships with numerous domestic suppliers and promoting differentiation through product development such as daily rotating menus.

The Company has a track record of recognizing substantial impairment losses on store assets due to the impact of the COVID-19 pandemic, and additional impairment losses may occur if performance falls significantly below plan in the future. Since the Company has applied IFRS from FY2024 (ending August 2024), goodwill (¥5,365,820 thousand recognized in FY2025 (ending August 2025)) is not amortized on a straight-line basis but is instead assessed through impairment testing, which increases the risk of impairment recognition when management plans deteriorate. The Company strives to prevent the occurrence of impairment losses by reviewing the performance of all stores monthly at the Board of Directors meeting and taking prompt countermeasures for underperforming stores.

During the COVID-19 pandemic, the Company experienced significant business impact due to business suspensions and shortened operating hours mandated by government requests, as well as difficulty securing employees. If a resurgence or a similar spread of infectious disease leads to the issuance of movement restrictions in the future, store operations may become difficult to carry out as planned, potentially adversely affecting the financial position and operating results. The Company is working on service development such as delivery services and mobile ordering to maintain sales even under movement restrictions.

Given the nature of the business, which relies mainly on seafood ingredients, there is a risk of food poisoning incidents caused by norovirus, pathogenic E. coli, and other agents, or product recalls due to violations of the Food Labeling Act; and due to reliance on third-party suppliers, a large number of stores could be affected by factors beyond the Company's control. If reports or rumors regarding food poisoning or foreign object contamination occur, this could have a material adverse effect on brand image and operating results. The Company is strengthening hygiene management through the establishment of a hygiene control system in line with the HACCP system, use of 3D freezing technology, and monthly stool testing of employees, among other measures.

If reputational damage occurs and spreads due to foreign object contamination in products, inappropriate conduct by employees, or inaccurate posts on social media, this could damage the brand image and social credibility, potentially having a material adverse effect on customer traffic, sales, and operating results. Regardless of the accuracy of the allegations, negative reputation concerning the industry as a whole poses a risk of spreading to affect the credibility of all stores. The Company strives to detect warning signs early and, when inappropriate posts are confirmed, follows a policy of responding promptly and appropriately.

Prices of ingredients such as fresh fish fluctuate due to factors beyond the Company's control, including domestic and international inflation, adverse weather and natural disasters, international fishing restrictions, and currency fluctuations (yen depreciation), and if such price increases cannot be passed on to product prices, operating profit will decline. In particular, rising procurement costs due to the ongoing depreciation of the yen directly affect the profitability of the Group. The Company seeks to minimize this risk by securing favorable trading terms and establishing a stable procurement system through maintaining relationships with numerous domestic suppliers.

Economic fluctuations in Japan, government economic policies such as consumption tax rate increases, and declining consumer disposable income due to lower employment levels may lead to reduced spending on dining out and takeout. In addition, rising procurement costs for fresh fish and other ingredients due to the ongoing depreciation of the yen also affect the business, financial position, and operating results. The Company strives to gather information on economic conditions and takes measures to curb sharp increases in procurement costs by maintaining relationships with numerous domestic suppliers.

The Representative Director and President and his asset management company hold approximately half of the voting rights, and the tradable share ratio at the time of listing was only 27.96%. In addition, a fund operated by Marunouchi Capital holds 19.5% of the Company's common stock, and depending on the fund's future policy regarding the sale of its shares, this could adversely affect share liquidity and share price formation. The Company plans to improve liquidity through a combination of requesting secondary offerings from shareholders, raising growth capital through public offerings, and increasing the number of tradable shares through the exercise of stock options.

The Company borrows from financial institutions to fund new store openings, working capital, and capital participation in subsidiaries, and there is a risk that interest payment burdens will increase for variable-rate borrowings if interest rates rise. Some loan agreements are subject to financial covenants, and a breach could result in the loss of the benefit of the term and require immediate repayment of debt. The Company seeks to reduce this risk by generating internal funds through securing profits and reducing working capital, diversifying funding sources, and maintaining good relationships with its banking partners.

In new store openings based on the medium-term management plan, there is a risk that store openings may be delayed and the planned number of new stores may not be achieved due to difficulty in obtaining construction materials and equipment, difficulty securing construction personnel, and the effects of construction work designated by the facilities in which stores are located. There is also a risk of insufficient acceptance of the store concept in areas with low brand recognition and difficulty in maintaining sales per store. The Company addresses these risks by strengthening its in-house store development capabilities through improved market analysis capability, reducing construction and equipment costs, and building good relationships with developers.